Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

Question

Quizplus · Accepted Answer

EBIt = Sales revenues - Operating costs
Net income = EBIt - Interest - taxes = (EBIt - Interest)×(1 - t)
ROA = Net income after taxes/Assets
two firms could have identical EBIts but very different amounts of interest, different tax rates, and different assets, and thus very different ROAs.

Since the ROA Measures the Firm's Effective Utilization of Assets